WHAT’S air rights got to do with it?
In this town, they make or break developments and, to paraphrase Jerry Seinfeld, they are a big something about nothing.
In a deal that should have created fireworks last year but was buried in a Midwestern insurance company’s press release, an entity controlled by Andrew Penson‘s Argent Ventures bought the land under Grand Central Terminal and all its unused air rights.
The deal, under the moniker Midtown Trackage, also gives Argent all the property under, along and over an amazing total of 156 miles of railroad tracks that run through Manhattan, the Bronx and Westchester, Putnam and Dutchess counties – chugging some 80 miles north along the waterfronts of the Hudson and Harlem rivers, and through towns such as Scarsdale, White Plains and Katonah.
Sources said the price was approximately $80 million.
This won’t affect your commute, however, as Grand Central and the tracks are all under a lease to the MTA that was renegotiated in December 2006 and ends on Feb. 28, 2274. Whew! Nevertheless, co-developments of apartments, retail and office buildings are entirely possible.
“The timing is perfect considering that the governor and other officials are talking about creating housing and development around major transportation hubs, and this is a perfect way to execute that goal,” said Mark Teitelbaum, Penson’s partner and Argent’s chief.
Documents we uncovered show that American Financial Group – the successor to American Premier Underwriters, a/k/a the old Penn Central Railroad – and the Owasco River Railway sold their “reversionary interest” to the Argent folks last December.
Marjorie Anders, a spokeswoman for the MTA’s Metro-North division, said that in 2007 the agency will pay rent of $2.24 million. The MTA also has an option in 2017 to buy back the land under Grand Central Terminal plus the 156 miles of track, but Argent can put off the sale for up to 15 years.
In this era of low commercial vacancy rates and high office rents, the sale of the air rights – also known as transferable development rights (TDRs) – could become the fast track to a return on Argent’s investment.
While the area surrounding Grand Central is known as the Special Grand Central Zoning District and is built up, there are several sites that can still receive TDRs. These include the Pakistani-controlled Roosevelt Hotel, and pieces of land along Park, Lexington and Madison avenues.
There is the possible future redevelopment of the MTA complex at 347 Madison Ave., but more likely and probably sooner we will see Scott Lawlor‘s Broadway Partners bulk up 237 Park Ave.
SL Green Realty Corp., which owns 317 Madison Ave., does not need more air rights, a spokesman said.
According to CoStar Group, 237 Park was built in 1905 with six stories. Ten more were added during the 1930s, and in 1981, it went to 21 floors. But in the special zoning district, it can go to 50-plus stories with a floor-area ratio, commonly referred to as FAR, of 21.6 if it only had another 700,000 feet of air rights.
The office building, known as Park Avenue Atrium, was essentially traded by Anthony Westreich‘s Monday Properties through a recapitalization to Beacon Capital, and then this year, to Broadway Partners REIT for $1.18 billion.
Westreich, Lawlor admitted, is keeping a toe in those bricks because he wants to be part of that redevelopment. A spokesman for Broadway Partners would not comment.
Coincidentally, the savvy Westreich recently went to contract to repurchase 230 Park Ave. from the Dubai investment company Istithmar. They paid him $705 million in November 2005, and now he’s paying them just over $1 billion.
As we and Post colleague Steve Cuozzo revealed in 2003, Westreich’s Monday Properties’ predecessor, Max Capital, had seriously considered obtaining a zoning lot merger between their two owned buildings – 230 and 237 Park – and Depew Place, the mini-street next door to, and owned by, 237 Park.
This would have saved them from buying all of the air rights from American Financial Group, which in 2003 comprised 1,264,364 at the then-going rate of $150 a foot, or a total of between $85 million and $90 million.
Teitelbaum says the nearly 1.3 million feet of air rights they purchased would equate to 1.5 million of leasable feet.
“Land and air rights are the most sensitive part of the value of the building,” Teitelbaum noted.
When Argent negotiated the deal with the railroad’s successor over 18 months ago, for instance, trophy office buildings weren’t selling for $1,300 to $1,600 a foot. With current construction and soft costs at $500 to $600 a foot, the rest of a building’s value is pegged to land and air rights.
If you are planning a development, and you need TDRs, based on recent land and air sales, they could be valued anywhere between $250 and $800 per foot, and could bring in $375 million to $1.2 billion alone.
But there is good news for you developers: Argent is not trying to make a killing, as they are ready to shake hands and take a piece of the new buildings.